For more than a generation, one issue has dominated political discourse in the Middle East. It has spawned militant and terrorist groups of almost every hue, from nationalist to Islamist. It has impeded peaceful change and modernisation in the region, and it has helped to keep authoritarian regimes in power.

The Arab-Israeli conflict has not only blighted the Middle East but also provided a smokescreen for that malaise, diverting the attention of Arabs from their internal problems and providing an excuse for tired governments to survive well beyond their sell-by date. "We have emergency laws, we have control by the security agencies, we have stagnation of opposition parties, we have the appropriation of political rights - all this in the name of the Arab-Israeli conflict," a prominent Lebanese Arab told a Beirut newspaper last month.

The speaker, as it happens, was Sheikh Mohammed Fadlallah, Lebanon's leading Shia cleric - though similar views can be heard from almost anyone between Casablanca in the west and Doha in the east. Resolving the Arab-Israeli conflict must be part of any serious initiative for change in the Middle East, Sheikh Fadlallah said, not just for its own sake, but because it would take away the props that support bad governance.

In Egypt, at about the same time, President Hosni Mubarak was addressing a conference on Arab reform. He, too, saw a need to resolve the conflict as a prelude to change - though with a different line of argument.

"The deliberate disregard of the daily violations of human rights committed by Israel in the occupied Palestinian territories ... will not help our endeavour to reform but may even strengthen terrorism and extremism which stem from the despair and frustration of Arab societies," he said.

"This frustration and despair come from the comparison between the external endeavour to force certain reforms on these societies, whether by force or voluntary, and the complete disregard of the violations that other parties commit." For the EU, meanwhile, resolution of the Arab-Israeli conflict is a "strategic priority". Without it, according to the European Security Strategy document, "there will be little chance of dealing with other problems in the Middle East" - in other words, failure to achieve peace is likely to frustrate hopes for democratisation, liberalisation, regional economic development and security cooperation.

To anyone who is reasonably familiar with the Arab world and has no particular axe to grind, the EU, the Egyptian president and the Shia cleric are merely stating the obvious. The Arab-Israeli conflict is central to the region's problems; bringing it to a comprehensive and equitable solution will immeasurably improve the prospects for reform, democracy, security, economic development and just about everything else in the Middle East.

In Washington, though, this is far from obvious. For reasons more related to ideology than reality, the Bush administration is extraordinarily reluctant to make the connection. The American proposals for the "Greater Middle East Partnership Initiative", as set out in their draft document for the next G8 summit, ignore the conflict entirely.

The document worries about terrorism and extremism, and sees political and economic reform as ways of combating them. At the grassroots level, its focus is on unemployment, poverty, illiteracy and so on, which may well be factors (though Bin Laden was neither impoverished nor under-educated) but words like "despair", "war", "occupation" and "injustice" are not mentioned at all.

The contortions in President Bush's speech last November, when he launched is campaign for democracy in the Middle East, were even more bizarre. "For the Palestinian people," he said, "the only path to independence and dignity and progress is the path of democracy. [Applause.] And the Palestinian leaders who block and undermine democratic reform, and feed hatred and encourage violence are not leaders at all. They're the main obstacles to peace, and to the success of the Palestinian people."

So it is all the Palestinians' fault, then. Never mind that Yasser Arafat is their elected leader (chosen in one of the region's more credible elections) and still has substantial support in opinion polls; never mind that the Israeli government is trying to depose him and recently threatened to assassinate him; never mind that the Palestinians have been trying to hold elections for the last couple of years but Israeli "security measures" get in the way.

It is no wonder that Arabs, many of whom genuinely want reform and democracy, are deeply suspicious of Mr Bush's plans: they smell of domination rather than partnership, and of promoting docility rather than democracy. But let us suppose, for a moment, that Mr Bush could be persuaded to accept, as the EU already believes, that reform in the Middle East is unlikely to succeed without addressing - and fairly resolving - the region's longest-running conflict.

The problem is not a lack of possible solutions. Most of the groundwork has already been done: we have the minutes from the Taba talks that broke off just before Ariel Sharon came to power, we have a very detailed blueprint from the International Crisis Group, we have the Arab Peace Initiative of 2002, the Road Map backed by the EU, the UN, Russia and (in theory) the US, and the Geneva Accord - the unofficial peace treaty signed last year by numerous Israelis and Palestinians.

What it really needs is political will: a serious initiative by an American administration that is genuinely even-handed, and prepared to apply the same pressure on an Israeli government that is currently applied to the Palestinians. Once that is done, the rest would start to fall into place. Given the nature of the conflict and its history, there is no way that everyone can be satisfied, but a comprehensive peace that could be sold to the Arab and Israeli public as generally equitable would seriously undermine the extremist groups and begin to marginalise them. They would not necessarily wither overnight, but they would be forced on to infertile ground. Al-Qaida's arguments about a "Zionist-Crusade alliance" would lose much of their popular appeal.

Meanwhile, Arab states such as Syria would have no justification for sheltering militant groups, since the distinction that they currently make between terrorism and "legitimate resistance to foreign occupation" would cease to be relevant. At the same time, instead of dwelling on the defeats and grievances of the last half-century or so, Arab governments (and the public at large for that matter) would be forced to contemplate the future - a future of peace and new possibilities.

The implications of this are nowhere more apparent than in Syria, where the Ba'athist regime's popularity is based almost entirely on its campaign to recover the Golan Heights from Israel. Return the Golan to Syria and the regime's raison d'etre will vanish overnight. The Ba'athists will then have two choices: to regain their legitimacy through popular reforms ... or go.

On the economic front, the effects of a fair and comprehensive peace might be less immediately apparent, but a significant obstacle to regional trade - the boycott of Israel - would be removed. The point here is that peace would have to be comprehensive, including a general normalisation of relations as proposed by the Arab Peace Initiative. The examples of Egypt and Jordan show the need for that.

In both countries, the development of economic relations with Israel, as envisaged in their separate peace treaties, has been hampered by the continuing conflict - especially since the flare-up in violence more than three years ago. Beyond all that, there is the damage that the Bush administration is doing to perceptions of the United States through its inaction on the Arab-Israeli issue which, like the Iraq debacle, is driven mainly by blinkered ideology.

That is a matter that Americans will have an opportunity to confront in their elections next November, but in the Middle East it is also stifling the sort of home-grown reform efforts that Mr Bush supposedly wants to encourage. "Those in the United States who call for rearranging the region would do well to stop such talk," the Jordanian foreign minister, Marwan Muasher, warned in an article last year. "They are alienating Arabs and jeopardising the efforts of genuine reformers, who now cannot advocate democracy without being accused of doing America's bidding."

The best way to counter that, he argued, was for the US to "step up its efforts to help resolve the Arab-Israeli conflict", adding: "No other action can better demonstrate that the United States is sensitised to all the problems of the region."

While it is fine to argue, as many Arabs do, that reform in the Middle East should come from within, there is no doubt that it will need help from the US and elsewhere. But until the US demonstrates an interest in real partnership and cooperation, such help is bound to be resisted.

The one practical step that the US can take immediately towards redeeming its reputation, while simultaneously advancing the cause of reform, is to make a fair Arab-Israeli peace its priority and to move robustly to achieve it. There is simply no other way. And, as Iraq unravels, Mr Bush may feel a need to redeem America's reputation sooner than he thinks.